Farm leaders, energy producers: Rail delays are fewer, but still causing widespread havoc
The slow rail service threatening the livelihood of farmers in the upper Midwest have gotten better in recent weeks, but, at the Forest River (N.D.) Bean Co., the rail cars ordered from BNSF or Canadian Pacific are still two to three months behind, said the company president.
Brian Schanilec, a fifth generation farmer, called the crisis the worst that his family has ever faced, worst even than the 1930s.
“We survived the Great Depression,” he said. “We may not survive this.”
Schanilec was one of several farm leaders from North Dakota, South Dakota and Minnesota who joined other railroad customers and railroad officials testifying Thursday before a hearing of the U.S. Department of Transportation’s Surface Transportation Board.
“We have crops we cannot sell, we have (price) discounts that are historical,” Schanilec told the regulators. “And now, we won’t have to plant half our acres because we can’t get our crops to market. This is the biggest crossroads in our history. We cannot secure enough fertilizer to plant our crops this year.”
The slow rail service and the swollen discounts cost North Dakota corn, soybean and wheat growers $441 million in potential income this past year, testified DeWayne Bosse, a South Dakota Farmers Union official who also farms in North Dakota.
BNSF and other railroad companies blame the massive increase in demand on their services, which includes demand from North Dakota’s booming oil industry, and an unusually harsh winter.
The pinto beans that the Forest River Bean Co. deals in, like other dry edible beans, are a specialty crop that doesn’t need many cars but it needs them on time and in good shape to keep bean quality, Schanilec said.
In a year, the bean industry uses a ninth of the rail capacity that the oil industry uses in a month, but the bean industry still isn’t getting the rail cars it needs, he said. “We are asking for 4,000 cars a year and the oil industry is shipping 36,000 cars a month.”
The slow rail service has cost pinto bean growers about 14 percent in prices, he figured.
A leader in the North Central Bean Dealers Association, Schanilec said North Dakota farmers grow half the nation’s dry edible beans, which also include white navies, black turtles and red kidney beans.
The rail crisis is much the same in other agricultural sectors.
“We have heard from co-op managers who believe that 85 percent of this year’s corn crop is still in either on-farm or warehouse storage,” according to written testimony from Mark Watne, president of the North Dakota Farmers Union. “They also believe there is a good chance that this year’s crop will not be moved before the new crop has to go into storage.
“To take this even one step further, there is a growing fear that cooperatives will not be able to get access to the fertilizer needed to plant this year’s crop.”
In his written testimony, Robert Zelenka, executive director of the Minnesota Grain & Feed Association, gave as an example how rail delays affected one unnamed grain elevator on the Canadian Pacific line.
This elevator ordered its rail cars two months early, but the cars ended up 12 days late, he said. This cost the elevator nearly a quarter million dollars in late charges on a 100-car corn train, he said. “In contrast, the CP has no penalty for late car placements.”
“One of our biggest concerns looking forward is the likelihood of going into this fall’s harvest with elevators close to full of grain and no freight to ship it,” he said. “This will create some major problems, which will back onto farm storage and harvest delays....
“A fertilizer shortage is now on the horizon as well as a reoccurring problem with the movement and placement of propane for this falls’ grain drying needs and home heating.”
Impact on power
And it’s not just agriculture interests that are concerned.
Xcel Energy also weighed in with written testimony about its coal shortage.
Of special concern is the coal delivery to the Sherco power plant 45 miles north of Minneapolis, which could affect customers throughout Minnesota, North Dakota, South Dakota, Wisconsin and Michigan, said Craig Romer, Xcel’s director of fuel supply operations. The Sherco plant supplies nearly a quarter of the electricity consumed in those states, he said.
In October, he said, BNSF, the plant’s sole rail carrier, delivered only 66 percent of the ton slated for delivery. In the first three months of this year, the railroad delivered only 53 percent, he said.
Xcel does expect to see service improvements this month and next, though, and hopes to restore its inventory to a safe level, he said.
While Canadian Pacific officials were at the Thursday hearing, it was BNSF that received most of the criticism from farmers and other groups dependent on rail for their shipping needs. BNSF now hauls more crude oil, mostly from North Dakota, than any other railroad.
“We are doing everything we can to restore service to a level that our customers have come to expect,” BNSF officials said in written comments submitted after their testimony Thursday.
“BNSF handled over 50 percent of all volume growth on the U.S. rail network last year and shipments from North Dakota alone represented 20 percent of the industry’s growth,” they said. “Our volume spiked in late fall of 2013, which was followed by one of the harshest winters on record putting a strain on our network. BNSF responded by taking aggressive action to ‘over resource’ the railroad with people and locomotives to keep our customers’ freight moving.”
“And volumes continue to rise,” they said. “Twice in the first quarter of this year, we handled over 200,000 units in a week, which is more than any other railroad moved during the same period. The last time a railroad moved that much volume in a week was in 2007.”
The numbers are moving in the right direction with more trains and cars moving products, the officials said. “BNSF is investing $5 billion in improving and expanding our network. The past four years have been our largest capital plans ever.”
The company is hiring 1,000 employees in the five-state region to replace retiring ones and adding new positions, and now it has 1,500 workers in North Dakota, said BNSF spokeswoman Amy McBeth.
Oil vs. grains?
Many farmers believe that BNSF has favored oil trains over grain trains.
“This perception is reinforced when an elevator, that has been waiting months for delivery of grain cars, sees an oil train-a-day, go rolling past his facility,” Zelenka said.
“We think that oil has had quite an effect on their operations,” said Steve Strege, executive vice president of the North Dakota Grain Dealers Association of the 392 licensed grain warehouses.
In recent years, he said, railroads have aimed to have 100-car trains haul North Dakota crops to the Pacific Northwest and return for more crops three times a month. In January, when rail delays were at their worst, BNSF’s trains were doing that 1.6 times a month, though they may be back to two times now, he said.
BNSF officials have said agriculture is still is a priority.
Whatever the causes, it’s hurt farmers bad, Schanilec said.
On Thursday, the discount off the local cash price for spring wheat in Buxton, N.D., was $1.24 off the nearby futures price in Minneapolis, he said. That’s three or four times the typical basis, he said.
The basis is the difference between what an elevator manager pays a farmer and the price that the manager can get for the crop on the futures market. Traditionally, the manager uses that spread to cover the cost of operating the elevator and of transportation.
According to Watne, trains normally arrive within a four to five days of the scheduled delivery date, but now they’re late by two to three weeks. “Therefore, to cover their potential losses, the manager will widen the basis, deducting that from the producer.”
That’s if the farmer can even make the sale.
“One of our colleagues tried selling wheat to a local elevator,” Schanilec said at the Thursday hearing. “The local elevator told him, ‘We can’t offer you a price. You can maybe haul it in in July.’
“I’m a bib-overall-wearing grass-roots farmer and I am pleading for help in getting our crops to market.”